Tata’s coup follows simmering rift at India’s biggest firm

The agenda for Monday’s extraordinary board meeting at India’s largest conglomerate contained little hint of what was to come.

Under a portrait of the formidable J R D Tata, the board wrested back chairmanship of the steel-to-software business empire for 78-year-old Ratan Tata, ousting his protege Cyrus Mistry, 48. (File Photo)

The agenda for Monday’s extraordinary board meeting at India’s largest conglomerate contained little hint of what was to come. Tata Sons Ltd. directors were summoned to the group’s fabled Bombay House headquarters to discuss the sale of assets, its moribund U.K. steel business and the group’s legal wrangles with Japan’s NTT Docomo Inc., according to a person with knowledge of the events.

But once the meeting started in the wood-paneled boardroom on the fourth floor, it took a different turn. Under a portrait of the formidable J R D Tata, the board wrested back chairmanship of the steel-to-software business empire for 78-year-old Ratan Tata, ousting his protege Cyrus Mistry, 48, in a coup that stunned India’s business community.

Mistry said he was shocked at the nature of his dismissal, according to a letter he sent to Tata directors. The letter described the board meeting as illegal and invalid. Yet Ratan Tata had met Mistry earlier on Monday to present him with options, according to three people with knowledge of the matter, who asked not to be identified because the meeting was private.

“I have to say that the Board of Directors has not covered itself with glory,” Mistry said in the letter, a copy of which was seen by Bloomberg News. “To ‘replace’ your Chairman without so much as a word of explanation and without affording him an opportunity to defending himself in a summary manner must be unique in the annals of corporate history.”

The rift had been brewing for months, said people who work with senior Tata executives and asked not to be named because the matter is private. It was a clash of styles, a feeling that Mistry, handpicked by Tata, wasn’t adhering to the traditional values of a company that had previously been led by a person related to the Tata family.

Key to the showdown was a $1.17 billion legal battle with former partner Docomo over an Indian telecom venture. Docomo is trying to enforce a London Court of International Arbitration decision ordering Tata Sons to pay the sum for failing to uphold a contract. That venture was created during Ratan Tata’s 21-year period at the helm, and Mistry’s handling of the matter was seen by some as an erosion of the Tata Sons ethic of honoring commitments, according to the people.

“The biggest challenge for an organization is planning for succession, especially following the tenure of a very successful CEO,” said Vijay Govindarajan, a professor at Dartmouth University’s Tuck School of Business. “The current leadership crisis is an unwanted distraction.”

Mistry’s handling of troubles at other group businesses were also causing concern, according to the people, including the break-up of Tata Steel’s European empire, which Ratan Tata helped acquire. Spokesmen for Ratan Tata and Mistry declined to comment.

For a QuickTake Q&A on Tata Group, click here.

Yet if Mistry’s way of doing things was rankling the old guard, he also had successes in an increasingly difficult business climate.

Ratan Tata had swelled group revenues more than 60-fold to $100 billion with a campaign of expansion abroad that included the troubled European steelmaker Corus Group Plc and marquee brands such as Land Rover, Jaguar, Tetley tea and New York’s Pierre hotel.

With the slowdown in China dragging on global trade and Brexit concerns further damping European operations, Mistry was trying to unwind some of that growth and pay back part of the debt Tata had built up to pay for the acquisitions. And while the steel and power businesses were losing money, Tata Consultancy Services Ltd., the group’s largest unit, has pushed into cloud computing and digital services to weather lackluster global IT spending, beating analysts’ estimates in the process.

“I am stunned,” said S. Manikutty, a former professor at the Indian Institute of Management Ahmedabad, who closely tracks Indian conglomerates and family businesses. “It was completely unexpected because Mr. Mistry was trying to remove important cobwebs from the Tata stable.”

That didn’t save him. The day after his ouster, the corridors of Bombay House, Tata Group’s austere headquarters for 92 years in downtown Mumbai, were quiet, with most staff still in shock at the news. Traffic jammed the street outside, while reporters, TV crews and onlookers thronged the building.

Media Speculation

As rumors flew and media speculation mounted, Ratan Tata called together the chief executives of the group’s businesses to calm the ship. There would be continuity in all branches of the business without any issues, he told them in a 25-minute gathering, according to an executive who was present. Tata said he was keen to honor decisions made by Mistry, the person said.

To read a Gadfly column on the Tata ouster, click here

Ratan Tata is the latest in a long line of so-called boomerang CEOs who retook control after stepping down or being ousted. The late Steve Jobs revived Apple Inc. after more than a decade in the wilderness, A. G. Lafley made a two-year return performance at Procter & Gamble Co., Howard Schultz came back to give Starbucks Corp. another shot, and Narayana Murthy made a brief return as executive chairman at Tata’s IT rival Infosys Ltd.

Now Ratan Tata’s search for a successor is back where it started. After grooming Mistry for a year before he took over, Tata and four other prominent leaders — Venu Srinivasan, Amit Chandra, Ronen Sen and Kumar Bhattacharyya — are part of the panel formed to find a new chairman within four months.

For a story on Ratan Tata’s investment after stepping down in 2012, click here

“This will mean another period of uncertainty to Tata stakeholders,” said Morgen Witzel, author of “Tata: The Evolution of a Corporate Brand.” He called the pledge to find a new leader within four months, “a heroic undertaking, given how long it took them to choose Mr. Mistry in the first place.”

Tata himself has said that it’s not easy to spot a true leader. At a meeting with young entrepreneurs in Singapore in late March, he was asked about the qualities that make a chief. He responded that it wasn’t easy to tell how someone would respond until they were in the job.

“The final test is crisis that one faces,” he answered at the time, speaking generally. “Someone who deals with that crisis with his sleeves rolled up, as against those who hold on, is finally the mark of a real leader.”